The official referee of recessions is the NBER, National Bureau of Economic Research, in Cambridge. So how do they get away with calling this recession 11 months after they claim it started?
I was a
graduate student in economics in the field of business cycles. The
founder of the field was Wesley Mitchell who also founded the NBER in the 1930s. I
carefully studied business cycles and the NBER methodology.
What has happened is that the business cycle changed twice in the past 50 years. First, by 1958 the NBER had seen enough patterns in the previous half century to create their leading, coincident and lagging indicators that were pretty accurate. The leading indicators showed that the forces that first stop growing in the economy did so 6-18 months before the overall economy started to slow down. The coincident indicators became the actual measures of economic activity and included unemployment. The lagging indicators were used to show that some economic effects continued to retreat even when new growth was strongly underway.
I left the field of economics when I realized that the
business cycle was a meaningless concept because it was based on data
but no underlying theory or viable model. (The one vague theory of
Solomon Fabricant's inventory movements was very poorly demonstrated).
That all changed about 15 years ago with the second major economic change and the NBER was left with nothing. None of the indicators worked any more. One writer suggested that the NBER was taken over by Lefties who wanted two recessions to fall into George Bush's time in office.
I don't think so. I think the economy changed 15 years ago and the NBER is trying to adjust its model to fit reality. There no longer are any real leading indicators and only employment remains as a coincident indicator. We once had the GNP move in cycles related to the coincident indicators so the two quarters of negative growth definition was viable and became public, but it hasn't done so for 15 years.
I have said it before and repeat, there are no more business cycles because the economy is so huge and so diversified that the great variation in separate sectors don't converge on the overall economy.
What we are experiencing right now is a completely new phenomenon. A global financial collapse.
The businesses and investors of the world saw a disaster coming in the Middle East with Iran building nuclear weapons and threatening the Straits of Hormuz. The stock markets began to fall and fell steadily for a year while, for the same reason, the price of oil climbed for that same year. Both were realistic reactions to a horrific nuclear Iran reality.
Both the magnitude of the stock market fall and the magnitude of the oil price rise pushed all the resources of the economy past their functional boundaries. That kind of boundary breaking occurs when investment portfolios decline 25% in a short time and a key resource, like oil, increases in price 300%.
Then the businesses of the world have to slow down, contract and reorganize. That is what is happening.
The NBER is, sadly, irrelevant.